Foreign direct investment
(FDI) in Latin America and the Caribbean rose 44% in 2004
to reach US$56.4 billion. In South America the increase
reached 48% (US$34.103 billion), while in Mexico and the
Caribbean Basin, 43% (US$22.273 billion). This is the first
year that FDI in the region has risen since 1999.
Jose Luis Machinea
In the report, Foreign
Investment in Latin America and the Caribbean, 2004,
presented today by José Luis Machinea, Executive
Secretary of the Economic Commission for Latin America and
the Caribbean (ECLAC), this trend is considered "very
positive". However, it warns that the region has still
not overcome the problem of attracting foreign capital.
The challenge of capturing FDI that provides greater benefits
to receiving countries remains.
Compared to the rest of the world's, the
region's percentage of foreign capital inflows has fallen
steadily in recent years, reflecting "evident weaknesses
in competing for newer, higher-quality investments (in higher-technology
manufactures, research and development centres and new services
such as those related to shared back-office activities,
software and regional headquarters)".
The countries with the greatest increase
in foreign capital were Brazil (79%) and Chile (73 %). Brazil
was the largest recipient with over US$18 billion followed
by Mexico with almost US$17 billion. Argentina rose over
the previous two years. Trinidad and Tobago, El Salvador
and Colombia also saw FDI rise, while Panama and Venezuela
experienced a downturn.
The United States remained the region's
largest investor (32% of flows), given the decline in European
investment, especially from Spain. Asian investment remains
In line with trends worldwide, between 2002
and 2003 the service sector received most FDI (51%), although
these were mostly traditional services and not those with
a higher technological content, which is preferable. Manufacturing
(36%) came next, followed by the primary sector (13%).
The contribution from privatization programmes
has lost ground as a factor attracting foreign capital,
to the purchase of private sector assets. The presence of
transnational firms among the largest companies operating
in Latin America and the Caribbean has fallen in recent
years. The ECLAC report reveals that their place has been
taken by growth from local private firms that, as they start
up operations in other Latin American countries, have become
known as translatinas (Petrobras, Telmex, América
Móvil, Cemex, Companhia Vale do Rio Doce, Femsa,
Odebrecht, Carso Group).
China has emerged as a serious rival for
FDI flows for some of the region's countries. For Mexico
and the Caribbean, this Asian country now represents major
competition for efficiency-seeking investment. In contrast,
for South America, China offers opportunities as a destination
for its natural resource exports.
ECLAC studies reveal that FDI does not automatically
offer benefits to receiving countries and that these vary
depending on the strategies applied by transnational firms
(search for natural resources, local markets, efficiency
in conquering third markets and technological assets).
Because of this, the UN regional body recommends
that receiving countries more clearly define what they expect
from FDI, and assign them a role within the framework of
their national strategies for developing production. Unlike
Europe and Asia, Latin America and the Caribbean still have
few efficient institutions that evaluate the policy in this
area to determine whether they achieved the desired effects.
Commission for Latin America and the Caribbean